Top banks weighed down by overdue loans

Updated: 2013-05-10 01:22

By WANG XIAOTIAN (China Daily)

The 10 listed banks covered by the study include the five largest State-owned lenders — the Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Agricultural Bank of China Ltd, Bank of China Ltd, and Bank of Communications Co Ltd.

Yung said although the banks were aware of the asset quality deterioration, they still had strong momentum to extend loans to riskier sectors, especially to small enterprises, for higher returns.

"The sales of wealth management products have continued to squeeze bank deposits, meaning less money available to lend out. Therefore, they have tended to seek higher returns for each sum of lending," he added.

The massive growth in sales of the products has generated considerable industry concern over China's shadow banking sector.

On Thursday, the Chinese central bank issued a report in which it said the market should "fend off any systemic risks" of wealth management products, "while allowing these products to play a positive role, by guiding banks to develop the business in a prudent and legal way".

It said returns from such products must match their risk. Banks must ensure they set aside sufficient provisions to cover their selling, while releasing regularly updated information related to the products.

Zhu Haibin, chief China economist at JPMorgan Chase & Co, said that China's shadow banking sector could now be worth as much as 36 trillion yuan, 69 percent of China's GDP, and the scale has doubled in past two years.